special report

REUTERS/Olivia Harris A SAAD STORY Accounts of a dispute between two Saudi billionaire families have so far focused on one side. New evidence suggests a different story

By Douwe Miedema, Shurna Robbins biggest banks billions of dollars and is now During an interview with Reuters, five and Sarah White being slugged out in courts from London to advisers -- two accountants, two PR advisers LONDON/GEORGE TOWN, June 10 the Cayman Islands. and a lawyer -- dominate, interrupting when Some family members face travel bans he tries answering a question. ohammed Algosaibi often turns the linked to the case so it has fallen to the 32- The missing money, he says, was taken palms of his hands up as he talks, as if year old to defend the Algosaibi empire since by his uncle Maan al-Sanea, who married askingM for understanding. the 2009 collapse of two Bahraini banks left into the Algosaibi family 30 years ago and He is trying to explain one of the biggest more than 100 banks including Deutsche was put in charge of its financial businesses. but least reported failures of the financial Bank, HSBC and Societe Generale owed an Al-Sanea used his insider’s access, Algosaibi crisis. This has split his family, one of Saudi estimated $22 billion. and his advisers say, to siphon off billions of Arabia’s richest, cost some of the world’s Small wonder he appears uncomfortable. dollars through a money-laundering maze.

JUNE 2010 A SAUDI FEUD JUNE 2010

“I WANTED TO WORK IN THE MIDDLE EAST. WHO’S WHO

I WANTED TO HAVE SOME ADVENTURES.” ALGOSAIBI FAMILY Wealthy trading family from eastern As a result the Algosaibis, who say they western banks -- although investors do have Saudi Arabia. Led for years by Abdulaziz have been left some $9.2 billion worse off short memories.” and then Suleyman, both now dead. through unauthorised borrowing, are suing Remaining family allege that son-in- al-Sanea in the Cayman Islands for fraud, MONEY EXCHANGE law Maan al-Sanea duped them out of forgery, and masterminding a massive Ponzi FAMILY AND BUSINESS have been inter- billions. They say they didn’t know what scheme following the collapse of the Bahraini twined in the Gulf for generations, a situation al-Sanea was doing until it was too late. lenders, one of which was owned by the family epitomised by the Algosaibis. The roots of their and the other by al-Sanea. wealth lie in a conglomerate of export and MAAN AL-SANEA Accounts of the case so far have focused on import and trading businesses, as well as land. Married Abdulaziz’s daughter Sana in the Algosaibi version of events. Al-Sanea has Based in the east of the country, the family 1980. Managed Algosaibi family finance always categorically denied these allegations, built construction firms and later won the businesses for almost three decades. and declined to comment for this story. concession to run the Pepsi-Cola bottling plant. Wealthy in his own right with holdings But new evidence presented by five banks Some 60 years ago they also started in the Caymans. suing the Algosaibi family company in a financial businesses, though on a modest separate case at the High Court in London scale. The Money Exchange served expatriate SALAH AYOUTI -- published here for the first time -- raises workers in the nascent oil industry around oil Algosaibi family accountant who, doubts about the family’s claim that it did not company Aramco with cash remittance and according to documents in a London know what al-Sanea was doing. currency exchange services. court case, raised questions about al- Banks have compiled a mountain of emails, When al-Sanea married Sana Algosaibi, Sanea years before the collapse of the resolutions and what look like transcripts of one of patriarch Abdulaziz’s five daughters, two banks at the centre of the case. telephone conversations for their suit, which in 1980, he was made a partner in the Money centres around deals they struck with units Exchange and took control of the Algosaibi GLENN STEWART in the family partnership Ahmad Hamad financial businesses. American who was hired by al-Sanea Algosaibi & Brothers (AHAB). The documents Saud Algosaibi, Abdulaziz’s only son, and helped run parts of the Algosaibi show that the Algosaibi’s own accountant had resented the fact Sana’s husband rose to power. family business. Now being sued by the been sounding alarm bells about al-Sanea In a sign of how deep the rift has since become, Algosaibis for his role in the collapse of and his business methods for years. Saud’s sister refers to him in her affidavit for the the banks. Says the foreign banks who “I am really disturbed from your careless Cayman court as somebody with a “general did business with al-Sanea knew what and unprofessional position in dealing with tendency to avoid any responsibility”. they were getting into. this situation,” accountant Salah Ayouti told patriarch Abdulaziz Algosaibi, the second of DEBT CONCERNS TONY JAMES the partnership’s three founding brothers, in a HIS BROTHER-IN-LAW wasn’t the only Ran al-Sanea’s bank in Bahrain. One letter about al-Sanea sent in May 1994. one unhappy about al-Sanea. Ayouti, the of a number foreigners detained in I am “hoping that it will not turn a disaster accountant, expressed worries about him on that country because of his role in the if you will keep behaving in careless way rather various occasions and was concerned that collapse. Released just before Christmas. than dealing with it strongly and seriously.” his debts could hurt AHAB, whose financial The documents show that al-Sanea built business was centered around the Money played an active role, and seemed to keep his empire with the full knowledge of his wife’s Exchange. “To date, no decision has been tabs on al-Sanea and his plans. Saud met family and is now being made a scapegoat reached as to who will settle that indebtedness,” bankers, dealt with the family’s financial for schemes his in-laws knew existed -- and he said in a 2000 auditors’ report. businesses, and was in frequent conversation realised were flawed -- all along, the banks say. As early as 1997, the accountant wrote that with al-Sanea. This new evidence and the countless the Money Exchange suffered a “permanent” Saud could be demanding. “Tried to reach legal cases shine a rare light on the practice liquidity shortage -- so much so that it needed you several times last month and this month,” of “name lending” in the Gulf Arab region, in to borrow not just to meet the needs of “the he wrote to Al-Sanea in 2005, according which a person’s name is sufficient collateral partners and their affiliated companies”, but to a court submission. “I understand where to win a loan or a business deal. also to service existing debt. you come from, however think the analysis “It’s something that happened in a lot Three years later, Abdulaziz stepped in to missed several points ... would like to suggest of emerging market countries. It tends to be reassure the accountant -- and creditors who meeting with someone from Money Exchange because of government relations or ties with may have been worried about the Exchange. to discuss a workable plan and come up with powerful, rich figures,” said Andrew Andrijanovs “In his capacity as Chairman and a partner of a scenario.” at investment banking boutique Exotix. AHAB”, Abdulaziz backed “the entire debts Page after page of such exchanges is “One person’s connections or their status of Maan Al Sanea and his companies”, says a proof, the banks argue, that the Algosaibis in society did lead to large sums being March 2000 document described as a “pledge”. knew what was going on and are therefore lent, sometimes without the proper risk The court documents in the London case responsible for setting things right. management. That has been a big lesson for also show that Abdulaziz’s only son Saud AHAB said it would not comment on 2 A SAUDI FEUD JUNE 2010

statements made in the London court so far, repeating that “the notion that they knew or cooperated in the looting of their business has no logical or legal basis”.

THE GOOD LIFE DESPITE THE FAMILY concerns, Al-Sanea clearly enjoyed the fruits of running an important part of the business, basing many of his companies in the Cayman Islands, where he held much of his wealth. Al-Sanea had a private plane fitted with plush white carpet, a master bedroom hung with expensive artwork, and a bathroom with gold fixtures, says Ninfa Arellano-Smith, a Cayman Islands banker working for HSBC. She met al-Sanea in 2006 through her husband -- the director for the Civil Aviation Authority -- and started working for him. Al-Sanea, an elegant dresser, has a down- to-earth and easy sense of humour, while his wife Sana dressed like a typical western woman on a beach holiday in the Caymans, Arellano-Smith recalls. “Sana is a very caring lady and soft spoken, REUTERS/Ralph Orlowski but you know she still runs things. It’s how they interact between them: she will pat him Then came the 9/11 attacks on the United While Stewart ultimately reported directly on the arm in a joking manner or something. States in 2001. America clamped down to Al-Sanea, the working relationship between They are a very caring, strong couple.” on money exchanges in Saudi Arabia -- the two men -- based at different ends of the The al-Saneas took up an entire floor at the unregulated businesses it feared could be bridge that connects Bahrain to Saudi Arabia luxurious Ritz-Carlton resort on their 2008 used as a source of funding for terrorist groups. -- remained very much at arm’s length. vacation, Arellano-Smith said, flying into Grand Stewart said the Algosaibis worried they “As a non-family member you didn’t have Cayman with an entourage that included might have to amalgamate their exchange any rights. If you questioned their business friends, butlers, caretakers and pilots. with those of other families. decisions you just ended up with them jumping Al-Sanea also inspected the resort’s 20,000 As a possible way out, they applied for a down your throat,” Stewart told Reuters. sq foot penthouse with panoramic views of the licence to operate as a bank in Bahrain, he world famous Seven Mile Beach and an asking said. When they won approval in 2002, they INVISIBLE CUSTOMERS price of $44 million. “He liked it, but it was too set up The International Banking Corporation ONE MAN WHO DID question the family small,” Arellano-Smith said. (TIBC), which Stewart headed “from day one”. was English banker Mark Hayley. He was the general manager at the Money Exchange for DIVERSIFICATION “AS A NON-FAMILY more than a decade until 2009. His testimony GLENN STEWART, AN AMERICAN banker in the Caymans court is a pivotal building who was hired by al-Sanea in 1989, says MEMBER YOU DIDN’T block in the Algosaibi argument. diversification led to rapid growth of the HAVE ANY RIGHTS.” Hayley, now 60, said the Money Exchange Algosaibi business, and a need for new funds. did not appear to have any customers. “Any At Algosaibi Investment Holdings in borrowing was to service existing debt and Bahrain, Stewart said he was given the task The Algosaibis contest the view that they to fund the Saad Group. Nor did the Money of raising $100 million in credit facilities from were involved in TIBC. “It is false that the family Exchange have any significant business Islamic banks for the Algosaibi partnership had sought to set up or operate a Bahraini bank. lending to customers,” he said in a 2010 as the family added canning factories to its The documents do not support it,” a spokesman affidavit to the Cayman court. bottling plant, and bought land. for the family said. The family “had absolutely “The Money Exchange does not possess This was a far cry from Stewart’s days at zero involvement in the running of the bank or any customer details, contact information or Oxford University, where he directed actor in meeting with regulators.” any other information which would normally Rowan Atkinson, who would win fame as Again according to Stewart, Bahrain- be contained on a customer file.” Blackadder and Mister Bean. based TIBC could not lend money there, so its There was also the matter of a forged letter. “I wanted to work in the Middle East. I customers came through the Money Exchange Hayley, who now lives in Britain and refused wanted to have some adventures,” Stewart in Al-Khobar. to talk to Reuters, told the Caymans court said in his deep baritone during one of three “The Money Exchange was responsible for that in the early 2000s, he returned from a long interviews. dispersing advances to the customers and for holiday to find a letter on his desk that used The business grew rapidly for a decade. collecting interest,” Stewart said. his signature but that had been written when

3 A SAUDI FEUD JUNE 2010 he was still away. a complaint with the United Nations Human “I telephoned Mr al-Sanea’s switchboard Rights Council & Treaties Division and are and someone put me through to him. I was also suing a UK private detective firm for so angry that I yelled at him. This was the first defamation, over a report it wrote for the time I had raised my voice to him, but I was Central Bank of Bahrain, and which became incensed,” Hayley told the court. public in court proceedings. “Mr al-Sanea tried to placate me. He They suspect the hand of the Algosaibis. subsequently told me that (al-Sanea’s personal “The Bahrain authorities, and in particular assistant) Mr Sohail had forged my signature the (Central Bank) have been complicit in and ... would be fined one month’s salary.” permitting the mechanisms of the state to be used to further the private political ends CREDIT CRUNCH of a powerful family,” they say in a the UN IT WAS THE CREDIT crunch which triggered the complaint. unravelling of al-Sanea’s empire. TIBC raised its funds against its loan book. Most of its money OF CIGARETTES AND PATRIARCHS came through interest-rate swaps and foreign THE AL-SANEA AND ALGOSAIBI businesses exchange and Islamic finance deals. are so entangled that it is difficult to work This was a risky way to run a bank. Like out who is owed what. The banks suing in Lehman Brothers, TIBC needed to constantly London hope that by bringing into doubt the roll over short-term maturities. When banks Algosaibis’ story, a narrative that has so far stopped lending, the game was up. In May dominated the case, they might have a better 2009, TIBC defaulted on a foreign exchange chance of getting something back. deal with Deutsche Bank. One option being considered in the wider The bank was put in administration, as was dispute is to pool assets across the two Awal bank, the separate company owned by groups, sources familiar with the situation but Maan al-Sanea. It was then that the scale REUTERS/Charles Platiau not involved in the lawsuit told Reuters. This of the losses became clear for the first time. could be used to pay banks a small part of the Administrators put the amount owed to the Stewart denies those charges and says the $22 billion they are owed. banks at $22 billion. banks who loaned TIBC money were all told That may be wishful thinking -- Saudi banks The Algosaibi family claimed they had where it was going, into real estate, hedge owed money by Saad may already have been no knowledge of the foreign exchange funds and into bank shares, and were given paid out in real estate assets, leaving foreign transactions, and didn’t even know that TIBC counter-guarantees. banks behind. existed. Al-Sanea, they alleged, had stolen “I certainly refute any allegations in that Adding to the confusion was the death billions of dollars and put it into his own Saad regard. We had no control over any money or of Suleyman Algosaibi at the height of the Investment Co Ltd (SICL). assets of the bank and we had no discretionary financial crisis. power to do anything,” Stewart said. Suleyman, the last of the three founding BLAME GAME Stewart ignored orders to stay in Bahrain partners of AHAB, took over when his brother THE TWO YEARS SINCE have spawned a and fled after the collapse of TIBC and Awal. In Abdulaziz died in 2003. That was a fairly series of lawsuits around the world. Besides March, the Bahrain public prosecutor charged smooth transition. But what happened in the cases in London and the Cayman Islands, him, Al-Sanea and others for breaches of the Suleyman’s last few hours is a crucial plank of legal proceedings are taking place in New country’s commercial companies law. the Algosaibi defence in the many court cases York, Saudi Arabia, the United Arab Emirates, The chief operating officer of Awal bank, 63- around the world. Bahrain and Geneva. The Algosaibis have also year old Tony James, was one of those held in The family claims that some of Suleyman’s sued Glenn Stewart in Los Angeles, where the country, only allowed to leave just before last-ever signatures must be forgeries, as the they describe him as the main architect of al- last Christmas, following diplomatic pressure dying man was incapable of signing anything. Sanea’s fraud. “TIBC was a sham bank and from the UK. But al-Sanea’s wife Sana told the Cayman had no real customers,” they say in their claim. The bankers who were detained have filed court that her brother Saud had hastily

REUTERS/Denis Balibouse

4 a saudi feud june 2011 travelled to Zurich, hoisted Suleyman out of Gulf often operate on the trust and word of in her testimony. bed, and had him sign the documents. patriarchs. (Douwe Miedema and Sarah White reported “My brother Saud took documents to Zurich “Name lending”, as it is known, enables from London, Shurna Robbins from George for my uncle Suleyman to sign only days before banks to lend to family conglomerates in the Town; Additional reporting by Michel Rose and his death, getting uncle Suleyman out of his Middle East even if the deals do not meet Tommy Wilkes in London, Frederik Richter in bed and into a wheelchair so that he could normal corporate governance standards. Bahrain, Amran Abocar in Dubai and Grant sign and smoke a cigarette,” she said. “We are Saudis and we are Muslims. McCool in New York) The dispute over Suleyman’s signature Concepts that are born and bred within us will (Writing by Douwe Miedema, Editing by Chris highlights the way family companies in the be unknown to the Cayman court,” Sana said Wickham, Simon Robinson and Alex Smith)

COVER PHOTO: Saudi businessman Mohammed Algosaibi poses outside the High Court in London June 10, 2011. REUTERS/OLIVIA HARRIS

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